“Caution is appropriate. Preparedness is appropriate. Panic is not.” (~ U.S. Surgeon General Dr. Jerome Adams, commenting on the coronavirus outbreak)
As the coronavirus outbreak continues to wreak havoc on markets and industries in the U.S. and around the world, businesses are now confronting significant and unique challenges. Successful navigation of these challenges will require thoughtful and comprehensive planning. Foley has created a multi-disciplinary and multi-jurisdictional team, which has prepared a wealth of topical client resources (see Foley’s Coronavirus Resource Center) and is prepared to help our clients meet the legal and business challenges that the coronavirus outbreak is creating for stakeholders across a range of industries.
In light of last year’s decision from the Delaware Supreme Court, Marchand v. Barnhill, 2019 WL 2509617 (Del. June 18, 2019), all businesses, including private, non-profit and public companies, should consider implications for regularly-scheduled board meetings and whether to call one or more special meetings of boards of directors to discuss the impact of the coronavirus on their businesses.
Marchand involved a suit against the board of a private company that manufactured ice cream, which suffered a listeria outbreak in early 2015 that forced the company to recall all of its products, stop production at all of its plants, and lay off over a third of its workforce. The company’s board of directors – despite meeting monthly – became the subject of a Caremark claim for utterly failing in its oversight and compliance-monitoring roles, which ultimately constituted a breach of the Board’s fiduciary duties (specifically, the board’s duty of loyalty). All relevant “red flags” were not identified by the Board, as they did not implement any Board-level system of compliance monitoring and reporting through which to address matters which were “intrinsically critical to the company’s business operation.
With COVID-19’s impact changing every day, boards of all public, private and non-profit companies should determine whether they are taking actions that are sufficient to fulfill their fiduciary duties of care and loyalty including those actions and duties highlighted by Marchand.
Boards may consider the following basic actions:
- Call a special meeting of the Board if a regularly scheduled meeting is not on the near-term calendar.
- Seek input as to how the coronavirus is impacting the company and what short-term measures are being put into place and what long-term plans are being developed.
- Create a special committee to monitor and assess the impacts of the coronavirus and provide oversight to the company and its management.
- Ensure that monitoring and reporting protocols are in place to gather and provide the board with relevant and up-to-date information as to all impacted areas including: employee and customer health and safety, human resources, IT, cybersecurity, cash flow and cash on hand, credit capacity, customer outlooks, supply chains and such other areas that may be applicable to a particular business and industry. Any identified deficiencies in reporting protocols should be addressed immediately.
- Obtain updated calendars for all Board members for the near-term and confirm contact information to ensure availability if additional special meetings need to be called on short notice.
- Create an accurate and detailed record of the Board’s considerations and actions.
The Board also has to assess how its meetings, requests and actions will impact the time available to management to deal with this rapidly-evolving situation. For example, the Board needs to weigh whether detailed written reports are worth the time required to prepare or whether management’s time is better spent directly addressing the myriad challenges currently presented.
It is interesting that the Marchand decision was issued less than one year ago and almost anticipated the current situation and how the Board’s duty of oversight is measured and valued.
For more information about recommended steps, please contact your Foley relationship partner. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization.
Foley will continue to monitor and keep you apprised of relevant developments. Again, click here for Foley’s Coronavirus Resource Center for insights and resources to support your business during this challenging time.